WASHINGTON (Legal Newsline) - Congress is taking the wrong approach in suggesting that bankruptcy laws used to resolve major mass tort cases should be changed, according to the American Tort Reform Association (ATRA).
“Why don't we look at some of the underlying issues that give rise to these bankruptcies as opposed to focusing exclusively on the bankruptcy process, notably mass tort litigation abuses and the multidistrict litigation process,” said Tiger Joyce, ATRA president.
A Congressional hearing, held this week, focused on the treatment of litigation in bankruptcy proceedings.
Abusing Chapter 11: Corporate Efforts to Side-Step Accountability Through Bankruptcy was heard before the Subcommittee on Federal Courts, Oversight, Agency Action, and Federal Rights.
“There can be no doubt that high-profile cases involving Purdue Pharma...and others have created a hue and cry that the bankruptcy process is unfair and that reforms backed by plaintiffs’ lawyers are needed to improve the system,” Joyce told Legal Newsline.
“What the plaintiff's lawyers want and what these hearings are angling towards is they think that litigation, the creditors, or the whole structure of bankruptcy should make far different allowances for matters involving litigation. The truth is that the bankruptcy process takes all the claims and treats them the same.”
Plaintiffs’ lawyers generally object to defendants filing for bankruptcy after they've won a lawsuit because it cuts into their fees, which can be one-third or more of a settlement or judgement, according to ATRA data.
As a result, certain members of the plaintiff's bar would like to remove or limit bankruptcy as an option, according to Joyce.
“The reality is that when the management of these cases becomes untenable, it's not just untenable from a legal standpoint,” he said. “It potentially impacts the viability of a company and so it's striking the right balance because the bankruptcy process is one that moves by approval of the creditors. The creditors have to vote to approve or their representatives have to vote to approve a settlement or a restructuring plan.”
This is the second hearing on the bankruptcy process. Congress held its first hearing on the matter last year in October.
"There is also an important hearing coming up on the Johnson & Johnson subsidiary bankruptcy, and the Purdue Pharma case is also obviously getting a lot of attention because they both involve matters where a lot of the creditors or the costs that are involved have led to bankruptcies and involve ongoing litigation and settlements," Joyce added.